Brexit in focus: what could Britain leaving the EU mean for your professional services business?
It may take ten years or more for the impact of Brexit to be fully understood.
Nothing is going to change overnight, while the UK embarks on the process of withdrawal from the EU. Regulating a new trading relationship could well take longer than the two-year period set by the Lisbon Treaty. Some say it could take more than 10 years.
In a debate we hosted in April this year, we heard that there is a £20 billion trade surplus in services with the EU. The legal sector is an important part of that, so will definitely be affected by some of the unravelling that is going to follow this result. You can read more about our debate below.
As one of our speakers said at that debate, we have now started “the biggest de-merger in history”.
Recruitment and training could get a lot more complicated
The first thing law firms should do is reassure their staff that no residency or work permits are likely to be cancelled overnight.
The UK - London in particular - attracts a large number of people from overseas. English law is the commercial law of choice worldwide, and many international firms have built up successful businesses as a result. Many firms capitalise on the ease with which lawyers and support staff can move from location to location within their networks.
New approaches to immigration may have a significant impact, but we hope that the UK government will protect this flexibility for the legal sector in its new policies.
Uncertainties about free movement are going to keep immigration lawyers busy for a while.
Other than changing specific references, such as to the EU Merger Regulation, it may be that commercial contracts will not need major surgery. But uncertainties are bound to arise. How will Brexit affect conflict of law rules, enforcement of judgments, applicability of WTO and other global trading agreements? Could Brexit trigger early termination, frustration of contract or force majeure clauses? These and other areas will take time and debate to work through.
Cutting 'red tape' is not easy to deliver
We all need to keep track of the changes and advise our clients accordingly. Cutting red tape for the benefit of business and individuals is an admirable aspiration.
But do we have a good track record in new or replacement legislation cutting home-grown 'red tape'?
All the contributors are part of the Professional Practices Alliance, an informal collaboration between four legal and accounting firms that advise professional services firms: CM Murray LLP, Maurice Turnor Gardner LLP, Hierons LLP and Buzzacott LLP.
- Clare Murray is a specialist in employment and partnership law, advising multi-national employers, professional services firms, senior executives and partners.
- Corinne Staves advises on partnership and LLP law.
- Richard Hierons advises owner managed businesses on corporate and commercial law.
- Claire Watkins provides accounting, tax and financial advice to professional practices.
Panel discussion organised by the Professional Practices Alliance, a group of accounting and legal advisers - Maurice Turnor Gardner, CM Murray, Hierons and Buzzacott - that provides support to professional services firms within LLP structures. London, 15 April 2016
Introduction By Mark Douglas, Partner, Hierons
I don't know about you, but to my mind the debate about whether Britain should exit from the EU has, so far, generated more heat than light. Persuasive points are being made on both sides. But what we in the legal profession - and more broadly in professional services - need is a clear picture of how a Brexit might affect our businesses and our clients.
So I was pleased to moderate last Friday's Brexit in focus panel discussion for the Professional Practices Alliance. And what a great panel it was that took us through some of the areas that might be affected if Britain were to leave the EU:
- David Morley, Senior Partner, Allen & Overy
- Alan Higgins, Chief Investment Officer, Coutts & Co
- Sarah Long, Counsel, Euclid Law
- Ceris Gardner, Partner, Maurice, Turnor, Gardner
There is a lot of uncertainty around the post-EU regime that the UK would adopt. What is clear from our discussion is that a vote to leave could bring big changes for the professional services sector. If our audience last Friday is anything to go by, those changes are unlikely to be for the better. When I asked for a show of hands, 75 per cent indicated said they believe that a Brexit would negatively affect their business. No-one put their hand up to say there was an upside.
Here, we have summarised our discussion to help you think about some of the steps you can take to ready your business. We held our discussion under the Chatham House Rule, so we're not attributing comments to individuals here. But I don't think that detracts from an extremely informative debate.
On behalf of the Professional Practices Alliance, thank you to everyone who took part.
What would life on the outside be like?
This is the biggest de-merger in history.
If the UK leaves the EU, no-one knows what the nature of our relationship with the EU would be. And our ability to negotiate the terms of our exit would be seriously hampered.
It would be like going into a gunfight armed with a knife. Why would the EU want to negotiate?
All speakers agreed we shouldn't underestimate the emotional response this would trigger among other EU countries, leaving no incentive for them to help us exit smoothly. Those of us who advise clients on transactions will recognise just how much that would weaken our ability to negotiate.
And the audience were left under no illusions about what was at stake. With a £20 billion trade surplus in services with the EU, our sector would undoubtedly be affected.
Brexit already looms large
It was clear to our speakers that with 10 weeks to go before the referendum, Brexit is already affecting business. The panel noted that transactions had started to slow down before last Christmas. And while other factors are also at play, Brexit is growing in importance in people's minds. Lots of clients are adopting a ‘wait and see’ attitude.
By contrast, in some areas, the anxiety is creating a surge in activity. Our speakers described how EU and EEA nationals who have been living in the UK for five years or more are scrambling to secure their status by applying for British nationality or permanent residency. There is a backlog of cases.
Shaking firm foundations
For those firms with an international workforce, it was felt that Brexit could challenge the very fundamentals of their business. The mutual recognition of professional qualifications in Europe - mandated by the EU - has defined their business model. Many of us take for granted the freedom to move people between different jurisdictions.
Our speakers found it alarming to think that if the UK were to leave, it might be difficult for firms to operate with one profit pool and in one partnership worldwide.
Immigration is the hot potato of the Brexit debate in so many ways. Those firms who do have an international workforce could be severely affected.
Talent could become even scarcer
The global war for talent has been well documented. In the past, professional services firms responded by finding the expertise they needed from the 28 countries in the EU. That, our panel argued, could be about to change.
At the moment, the UK benefits from a straightforward, visa-free process. So what would replace the current EU regime? The Swiss option? The Norwegian? The panel agreed it wasn't clear. But the fear was that the system used for non-EU or EEA citizens would be applied to all EU employees. In this situation, to recruit from the EU you'd have to become a sponsoring employer and issue your own certificates of sponsorship (work permits).
More importantly, you would have to prove you genuinely needed that person, for that particular role. The result: lots to do and a huge number of checks and balances.
We have already seen the number of applicants from other EU countries drop: they obviously worry that they could suddenly lose their right to work here if we leave the EU.
The grandfather of all solutions?
In reality, it was felt unlikely firms would suddenly need visas for all EU employees. Existing rights are likely to be grandfathered. But for how long isn't known, and it is unlikely to be indefinite.
It is likely that any restrictions the UK imposes on EU citizens after Brexit would be reciprocated. This would make it as hard for UK nationals to work in the EU as it would be to recruit from there.
And if Brexit raises more questions than it answers in regard to immigration, then the same is definitely true for regulation.
Regulation: one system, two or more
Take M&A for example. If Britain was no longer a member of the EU, there would be no ‘one-stop-shop’ for mergers. Merging companies that meet the relevant thresholds may have to deal with two separate regimes. And our panel saw implications of this dual process: cost, procedural uncertainty and divergent decisions.
It was stressed that anyone advising clients needs to have cost at the back of their minds and in particular, the cost of making two different filings.
If you have to run two different processes, the cost benefit analysis is going to really change.
You'd be looking at a situation where companies would be running two different but concurrent processes that would be likely to have different deadlines, different requirements and different meetings. This in itself, our panel thought, could cause numerous problems.
This was the most significant implication. Companies could potentially be faced with one competition authority clearing a merger and another not. In theory, both decisions could be binding on a company, causing significant challenges for compliance. In practice, our panel thought this seemed unlikely in the immediate term. However, the risk of ‘policy drift’ in the future cannot be ruled out.
The idea that the UK would suddenly take an entirely divergent view to the European Commission is very unlikely because we play a key role in shaping European policy at the moment. But that in itself becomes another issue: if we were to leave, then that voice is no longer there.
Time to get off the fence
Our panel wasn't asked to comment on the question of sovereignty. And they acknowledged this is an important aspect of the referendum debate. However, they did agree that it is important for all professionals to make their views known to employees, clients, suppliers and family, to contribute to an informed debate.
The argument to stay in the EU just isn't being picked up by small businesses. We should be engaging with that audience.
More about the panel
David Morley, Senior Partner, Allen & Overy
David has been A&O's worldwide Senior Partner since 2008. Prior to that, he was the firm's worldwide Managing Partner (2003 - 2008). In 2012, David was listed as one of the 10 most influential lawyers in the UK by The Times newspaper. In 2013, he was recognised as one of The Top 50 Big Law Innovators of the Last 50 Years by The American Lawyer. In 2015, he garnered the FT Innovative Lawyers Special Achievement Award, and was voted Senior Partner of the Year by Legal Week magazine. He is a member of the Mayor of London's International Business Advisory Council. He founded and currently chairs Prime - the legal profession's national scheme to promote fair access to quality work experience.
Alan Higgins, Chief Investment Officer, Coutts & Co
Alan is responsible for the management of RBS Coutts Bank's UK-based discretionary managed portfolios, and advises on the global investment strategy for major asset classes. Prior to Coutts & Co, he worked at Morgan Stanley Wealth Management where he specialised in asset allocation and alternative investments. He has held senior roles in fixed income portfolio management and a multi-strategy hedge fund.
Sarah Long, Counsel, Euclid Law
Sarah provides specialist advice on all aspects of EU and UK competition law, including mergers, cartels, state aid and abuse of dominance. She previously worked in the Antitrust team of Allen & Overy in London, and prior to that spent three years working for the OECD Competition Committee in Paris. Sarah is a contributing editor to Division 1 of Butterworths Competition Law Service, co-editor of the Competition Law Journal, and co-chair and organiser of the annual Junior Competition Conference.
Ceris Gardner, Partner, Maurice Turnor Gardner
Ceris specialises in two main areas: she advises individuals and their employers on UK immigration and work permit issues, and she advises individuals, families, estates and trustees on UK and international tax and succession issues, establishing UK and offshore trusts, family limited partnerships and other cross-border structures. She was named Trusted Advisor of the Year at the STEP Private Client Awards in 2012 and 2014, and was one of Eprivateclient's 50 Most Influential for 2015.
Mark Douglas, Partner, Hierons (Moderator)
Mark advises on general corporate and commercial law, including M&A, joint ventures, reorganisations and restructurings, and commercial contracts. He first qualified as a barrister and solicitor in New Zealand. In recent years, much of Mark's work has involved companies and trusts set up by wealthy individuals and families. Before joining Hierons, Mark was a partner at Reed Smith for 15 years where he worked on many large international transactions.
About the Professional Practices Alliance
The Professional Practices Alliance is a group of accounting and legal advisers - Maurice Turnor Gardner, CM Murray, Hierons and Buzzacott - that provides support to professional services firms within LLP structures. The group provides professional services firms with access to joined up, collaborative advice on partnership law, tax, accounting, structuring, financing and regulation, from specialists who are each market leaders in their own field.